If you had little to no debt (DTI: 5%-10%), currently renting, your initial REI goal was to fast track your way to be able to quit your 9-5 job with replacing it with positive cash flow, main goal was to acquire as many doors as you could, had 100k to start, and still had cash for reserves…
Would you continue renting and or seek out a primary residence where you could house hack (keeping your DTI low, so that your able to still acquire rentals) or would you first acquire income producing rental properties and then use that income to eventually help you qualify for a primary residence?
Which REI strategy would you use (e.g. Single Family, Multi-Family, Etc) or would you use several strategies?
What market(s) (e.g. local and or out of state) would you select to apply these strategies and why?
I know there’s tons of information and or specifics left out that still need to considered for a more detailed response, but a general one will suffice.
@Moses Carrillo - great exercise here. A lot of the answers depend on the location. I have worked with tons of people who's first property purchase was an investment property - even while they are still renting. Really depends on the market you are looking in - if you are in a high priced, high appreciating market you just want to run the numbers on the income coming in from rent. Could still be a great investment even if it broke even / had little cash flow. Having said that - I am a big fan of diversification as well - getting into multiple doors as quickly as possible - with 1 door, 1 vacancy = 100% of your cash flow - the same is not true if you have multiple doors (3-5, say). When it comes to SF, MF, etc - I let the numbers do the talking - there are plenty of arguments for or against a particular strategy of course - but if cash flow is your main goal, then that is exactly what I would focus on. Markets - there are an abundance to choose from of course. Some of the highest cash on cash returns I am seeing right now are in the midwest and the sun belt - states like Missouri, Indiana, Ohio, Michigan, Arkansas, Alabama - all have many offerings that can yield 13-15% cash on cash returns easily. There are even some markets out there where you can build to rent - build a new house and rent that out - cash flow day one AND have immediate equity in the property after construction.
@Moses Carrillo I only see one very simple solution...buy the most units you possibly can as soon as you can. Your $100k is your 25% down payment and hold back some initial reserves and closing costs...find the market that meets your criteria for a C-class value-add MF property, build your team (starting with an agent), and pull the trigger...long-term buy and hold...drop all profits back into renovating units and forcing rents higher...take advantage of your equity in 4-5 years and buy another one.
@Eric Winkler Thank You for such a detailed response. Your time is appreciated. I live in NY, about 50 minutes from NYC. Purchasing properties that cash flow is extremely tough in the surrounding area, well at least I haven't been successful in being able to identify any. I've seen and have watched other markets close by, some in-state e.g. Buffalo, Rochester, etc) and some in the surrounding states (e.g. Connecticut, etc). I'm in a constant battle with staying in state or going out of state, due to a multitude of variables (e.g. minimal experience, missing pieces to the core four, etc). The only state that I have 1 part (hard money lender) of the much discussed "core four" is in Houston, Texas. Most of the those opportunities were fix & flips and or total rehab projects. I would definitely love to eventually be able to take on projects were I value add through rehab and or better overall management, but I have/had my reservations due to my lack of experience and I didn't think it would be wise to take on such an aggressive strategy in my early stages of REI, especially if out of state. I did however take note of the markets mentioned in regards to the great cash on cash returns and the build to rent strategy. Thank You for that insight. Again, Thank You for your response.
@Brandon Sturgill Thank You for your response. It’s highly appreciated. I definitely want to buy & hold and I agree, get in there and start acquiring. I just need to really narrow down my criteria. Thank You
What’s your credit score, can you get loans? Do you have a good paying job? As you can see there’s lots of things that are personal to you and people making wowed guesses on your behalf falls short.
@Moses Carrillo I second everything that @Brandon Sturgill said. House hack into a C class 4 plex with value add potential. While improving that take on another 2-4 unit you can BRRRR. Always have 2 projects going at once. Build your systems. In a few years move up into a 10-20 unit using your equity. It will be a grind but if you follow that formula you'd be financially free in less than 10 years.
@Moses Carrillo I would buy the biggest real estate deal possible 5+ unit. It’s way easier to force the appreciation on deals like that and then refinance after completing your plan for that property and recycle that capital over and over again. When I started focusing on larger deals I was able to earn my financial freedom within 3 years, and I didn’t have to be a deal junkie running a hamster wheel in the process
While $100K is a lot of money, isn't enough to get into real estate and quit your day job. You could try to buy an air BNB. That will require a lot of work with marketing, cleaning, turnover, etc. Or buy a duplex (where I live you'd need to still get a large loan on top of the $100K), live in one half and rent the other half. It will cut down on your living expenses, but again you'd still need a job to qualify for the loan to buy it.
@Matthew Drouin I totally agree. I've been actually doing more deal analysis on multi family as of late. Properties that would require commercial lending. I'm really intrigued on how that property type relies more on not only the investors ability to value add (e.g. renovations, repairs, additions, subdivisions, etc), but their ability to implement strategies to reduce costs (e.g. preventative maintenance, technology driven services, negotiating terms and rates with service providers, etc), which in return increases the NOI. Thank You for your response, it's highly appreciated and congrats on achieving financial freedom.
@Noah Chappell sorry for the delayed response here. I appreciate the response. Definitely would love to one day have the systems in place to take down a 20+ unit. With a owner/managerial background I have a passion for numbers, systems, etc, so I’m confident that will come sooner rather than later (fingers crossed lol). Thank You again.
H & B 4evr.
@Moses Carrillo I’d go multi family and house hack. In my market you can find a decent 3-4 unit with that type of money for your down payment and still have a little left over for rehabs or reserves.
I agree with much of what has been said. Find a good investor friendly agent and contractor (unless you have that experience doing the work). If you're comfortable with more than a SFH, do it. Value add house hack. It's usually the best way to get started in my opinion.
I’m not sure where you live, but people are generally moving south and west. If you live there, even more reason to house hack.
I hope this helps add conviction to this strategy.
Find some Midwestern cities with good Price-to-Rent ratios and positive demographic trends to invest in. Call some PM's, Title companies and maybe an investor friendly realtor in those cities. Get a list of properties from the county tax assessor website or a company like Propstream. Make your own letter or use a company like Open Letter Marketing to send those owners letters. Wait for calls to come in, negotiate a deal, get under contract, get PM in place to take over and you've got a good cash flowing rental in a city with rising rents and hopefully values as well.
@Moses Carrillo value add house hack or launch a Vacation Rental biz. The first is more of an equity play, the latter more of a cash flow play. Get clear on your goals, pick the strategy that aligns best with your goals and go for it!
@Alecia Loveless Thank You for your response, it’s highly appreciated. Definitely leaning towards multi family.
@Pat Dansdill Thank You for the response. Definitely the value add house hack and or the value add in general, is what seems to be the consensus here. Thank You again for your time.
@Moses Carrillo if you're trying to scale quickly, the way to do that is with multi-family. I would look at small apartments in the 6-8 unit range. That will give you the biggest bang for your buck.